Baker Hughes Company (BKR) Q3 2026 Earnings Report, Transcript and Summary

Good day, and gentlemen. And welcome to the Baker Hughes Company Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, press *1 to raise your hand. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Chase Mulvehill, vice president of investor relations. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to Baker Hughes Third Quarter Earnings Conference Call. Here with me are our Chairman and CEO, Lorenzo Simonelli; and our CFO, Ahmed Moghal. The earnings release we issued yesterday evening can be found on our investor website at bakerhughes.com. We will also use a presentation with our prepared remarks during this webcast which can be found on our website. As a reminder, we will provide forward looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for the factors that could cause actual results to differ materially. A reconciliation of adjusted EBITDA and certain GAAP to non GAAP measures can be found in our earnings release and presentation available on our investor website. With that, I will turn the call over to Lorenzo.

Thank you, Chase. Good morning, everyone. And thank you for joining us. First, I would like to provide a brief outline for today's call. I will begin with an overview of our third quarter performance. Including the continued strength in orders and then provide an update on our progress integrating Chart. I will then highlight key commercial awards that demonstrate the breadth of opportunities across our portfolio before providing a high level update on the macro environment. Prior to handing the call over to Ahmed, I will discuss our mature asset solutions, or MAS, offering. This represents a growing opportunity that expands our role across the life cycle of producing assets, while helping customers optimize recovery, extend asset life, and maximize value. Ahmed will then review our financial performance. Provide fourth quarter guidance, and update our full year expectations. To close, I will highlight the progress we are making in shaping a new more industrialized Baker Hughes that connects capabilities to deliver integrated solutions across many end markets throughout the molecule to electron value chain. Let's turn to slide 4. We delivered another exceptional quarter. Reflecting disciplined execution, strong cash generation, and continued progress in our evolution into a higher value solutions led company. The quarter also marked our first period reporting Chart following the close of the acquisition on July 16. Adjusted EBITDA totaled $1.42 billion with margins of 17.6% comparable to last year. We delivered strong performance across the portfolio, supported by a recovery in Middle East activity within OFSE, consistent backlog conversion in IAT, and early progress from Chase. Adjusted earnings per share were $0.70. Up modestly year over year as strong operational performance more than offset the impact of higher interest expense. Free cash flow remained strong at $769 million including approximately $200 million of integration restructuring, and closing related cash costs associated with the Chase acquisition. Turning to orders, demand remains strong across our key end markets. Driving broad based strength within the portfolio. With the company achieving a book to bill ratio of 1.3 times. IET recorded $5.9 billion in of orders, representing a 1.7x book to bill ratio, including $1 billion of LNG equipment awards and $2.2 billion of power systems orders led by strong data center demand. This continued order momentum drove IET RPO to a new record of $39.4 billion, up 6% sequentially and 23% year over year. Further enhancing our visibility into future revenue growth. Supported by approximately $18 billion of IAT orders year to date and ongoing capacity expansions, we now expect full year orders of $21.5 billion to $23.5 billion. Given the strength of demand and increased visibility into future opportunities, we now expect IET orders to exceed $50 billion over Horizon 2. The outlook reflects sustained investment across gas infrastructure, offshore production, data center, and industrial markets. Along with emerging opportunities in geothermal and space. Importantly, these equipment orders expand our installed base. Reinforcing the long term earnings potential from high margin aftermarket service upgrades, and digital solutions over the asset life cycle. Turning now to the recently closed Chase transaction. The acquisition represents a significant step in our strategy to broaden Baker Hughes exposure to attract energy and industrial growth markets. Chase adds complementary capabilities in thermal management, cryogenics, and carbon capture. Enabling us to deliver more integrated solutions across the molecule to electron value chain. The combination also significantly expands our market opportunity positioning Baker Hughes with a total addressable market of more than $400 billion, with greater exposure to attractive growth markets including data centers, gas infrastructure, geothermal, space, and industrial gases. Turning to integration. We have made strong progress in the first 100 days. Already executing $70 million of our $325 million cost synergy target. We have established clear KPIs and accountability across the organization as we deploy the Baker Hughes business system and advance our people, systems, commercial, and operational priorities while maintaining business continuity. Ahmed will provide more details on cost synergies later in the call. Importantly, the value creation opportunity extends well beyond cost synergies. Through the Baker Hughes business system, we see meaningful opportunities to improve Chart's manufacturing, sourcing, project execution, and commercial performance driving better delivery, higher productivity, and significant margin improvements. Together with the realization of synergies, these improvements give us confidence that Chase EBITDA margins can reach 22% to 23% by the second half of 2028, with further expansion beyond that. We are also moving quickly to capture the commercial synergy opportunities created by the combination. Our teams are working together across our highest priority accounts. With a regular cadence to identify and convert opportunities across the combined portfolio and installed base. We are already seeing early proof points including a major power generation order secured by IET from a legacy Chart customer. This is a great example of commercial opportunities created by bringing these 2 companies together. With that, let's turn to key awards on slide 5. Q3 orders demonstrated broad based demand for our versatile portfolio across our end markets. With meaningful awards in data center, gas infrastructure, digital, nuclear, and energy-upstream markets. Starting with data centers, continue to expand our position in power generation for this rapidly growing market, securing 2 major awards in the United States. Year to date, we have now booked $4.9 billion of data center awards. These wins reinforce the strategic importance of the market and demonstrate that Baker Hughes is increasingly a critical enabler of the power infrastructure required to support the rapid growth of AI. Reflecting the scale of the AI-driven power opportunity, we secured a major order to provide 1.1 GW of power generation capacity for a major US technology company. The project will support advanced computing infrastructure for model training, inference, and physical AI workloads. Additionally, we received a major power generation order from a US energy company representing approximately 500 MW of capacity for AI infrastructure development. In gas infrastructure, we delivered another strong quarter, with awards spanning LNG liquefaction and feed gas transportation. Along with the strategic agreement in behind the meter power generation. We expanded our relationship with Venture Global through a major LNG award for the Plaquemines expansion, including IET equipment across 4 liquefaction blocks that utilize Chart cold boxes. This is an early example of the broader value we can deliver by combining the complementary technologies of Baker Hughes including Chase. We also secured a substantial order for Venture Global's Cloud Connector Pipeline project. Our scope includes an integrated compression solution using Frame 52E's gas turbines to support 1 of the largest LNG feed gas transportation projects in the United States. Beyond these awards, we strengthened our long-term with Venture Global through a new power framework agreement with GE Vernova. The agreement covers up to 16 behind the meter power islands. Representing up to 10 GW of generation capacity and establishes a repeatable model to support Venture Global's LNG growth and potential adjacent data center development. Together, these awards further strengthen our long-standing relationship with Venture Global while highlighting the breadth of our leading LNG franchise across both liquefaction and pipeline infrastructure. We also continue to see strong demand for gas processing and offshore production infrastructure. We were awarded a substantial, integrated FPSO equipment package for a large offshore development. The award includes LM2.5 thousand aeroderivative gas turbines driving both power generation and gas compression equipment. Highlighting the versatility of our turbine portfolio and our ability to support critical offshore infrastructure. Beyond new equipment, we continue to grow our life cycle services business. We secured a significant long term service agreement with SBM Offshore. Covering 27 LM2.5 thousand gas turbines across 4 FPSOs. Agreement combines maintenance and repair service with iCenter digital service for remote monitoring and diagnostics, enhancing equipment reliability and availability across these critical offshore assets. We also received several compressor upgrade awards in the Middle East and Asia. These awards reflect continued investment in our installed base and demonstrate the value customers place on enhancing the reliability, efficiency, and performance of existing assets. While creating additional high margin, recurring aftermarket opportunities for Baker Hughes. Turning to digital. Industrial Solutions secured key Cordant and wind across data center LNG, and industrial markets. Reflecting continued share gains across balance of plant applications including third party equipment. These awards included a preferred supplier agreement, as well as sensing, protection, and asset health solutions supporting key customers. These wins demonstrate Cordant's expanding reach across both Baker Hughes and third party installed bases. In nuclear, we secured an order for and control valves across 6 reactor units in Europe. This award strengthens our position in the growing nuclear new build market, while expanding our installed base and creating attractive aftermarket opportunities over the life of these assets. Turning to energy upstream. Our OFSE team secured several key awards across MAS and subsea, reinforcing the breadth of our capabilities and global customer relationships. In Pakistan, we signed a multiyear MAS contract with OGDC to optimize production and recovery across more than 120 wells in mature oil and gas fields. The program integrates our extensive subsurface expertise, surface production technologies, and digital solutions to help unlock additional value from existing assets while supporting greater domestic energy supply. In addition, BP awarded us a significant contract to provide integrated offshore production enhancement and stimulation services in the U.K. North Sea. Using our vessel based solution and StemForce technology, we will support new well development and enhanced recovery from mature fields. In The Middle East, we continue to deepen our partnership with national oil companies leveraging our broad technology portfolio to help customers improve production performance and maximize the value of their assets. In Kuwait, KOC awarded Baker Hughes a significant multiyear contract to deploy fit for purpose production AI enabled solutions and hybrid Kymera drill bits. Also announced plans to establish an in country research and technology development center to accelerate innovation optimize upstream production, and build local expertise. In subsea, Eni North Ganal awarded us a substantial contract for Kuwaiti Northern Hub Development in Indonesia. Our scope includes deepwater horizontal tree systems, associated manifolds, subsea controls, and distribution systems, as well as Cordant digital solutions. We also secured a significant integrated subsea system award from ENI for the deepwater Cronos gas development offshore Cyprus. Representing an important win for our subsea business in the Eastern Mediterranean. Finally, we recently signed 2 strategic agreements in Venezuela that bring together capabilities across resource development and energy infrastructure. Building on more than 60 years in the country, our installed base includes the largest artificial lift footprint significant flexible pipe infrastructure, and approximately 240 turbomachinery units across 23 sites. Positioning us well to support Venezuela's long term energy ambitions. Collectively, these awards and strategic agreements demonstrate the breadth of the Baker Hughes portfolio, the growing value of our enterprise capabilities, and increasing demand for integrated solutions spanning molecules to electrons. Turning to the macro on slide 6. The macro environment continues to underscore the importance of energy security and reliable supply. Disruptions across key producing regions have tightened inventories and supported commodity prices. Reinforcing the need for continued investment global energy production and infrastructure. While the need for longer term investment remains clear, customers continue to take a disciplined approach to near term spending. Against that backdrop, we expect global upstream spending to be broadly flat year over year. With an improving outlook into 2027. In LNG, we continue to see a favorable outlook with operators looking to accelerate projects where possible. With existing capacity and committed projects expected to bring global LNG capacity to approximately 800 MTPA by 2030. We see future FIDs supporting further growth to 950 MTPA by 2035 as countries increasingly prioritize supply diversity and reliable power generation. Demand also remains exceptionally strong across power markets. With AI adding another structural driver to global power demand which is expected to double by 2040. In The US alone, approximately 100 GW of incremental data center capacity is expected by 2035, requiring roughly 18 Bcf per day of incremental gas supply to meet the associated electricity demand. The challenge is not simply generating enough power, but delivering reliable and scalable power where and when it is needed. As grid constraints persist, hyperscalers and industrial customers are increasingly looking to on-site and behind the meter power. This plays directly to Baker Hughes' strengths, across power generation and gas infrastructure. Positioning us to participate across the value chain as AI drives increasing demand for both electrons and molecules. Overall, the growing need for secure energy supply LNG capacity, and reliable power generation reinforces long term growth potential for our portfolio and our ability to deliver solutions that span from molecules to electrons. Now turning to slide 7. I would like to spend a few minutes on mature asset solutions, an important part of our strategy to create a more resilient, higher value OFSE business. An increasing share of upstream investment is directed towards sustaining production and improving recovery from existing fields. For our customers, the opportunity is to recover more, produce reliably for longer, and ultimately manage the retirement or repurposing of these assets more effectively. For Baker Hughes, MAS creates a compelling opportunity to deliver outcome based solutions by bringing together capabilities from across our portfolio we can optimize value across the life cycle of mature assets. Our mass offering spans 3 core areas. The first is recovery optimization, we help customers improve recovery factors and unlock additional resources from mature fields. We begin with a subsurface led assessment to identify opportunities and then develop an integrated solution around the specific needs and economics of the asset. This can increase economically recoverable reserves and extend the field life. The second is asset productivity and integrity. Where we help customers maintain and improve production while protecting the reliability of existing wells and infrastructure. By identifying performance constraints and applying the right interventions and technologies, we can restore productivity reduce downtime, and extend productive asset life. And the third is decommissioning and repurposing. Where we help customers manage end of life liabilities efficiently while evaluating opportunities to create new value from existing wells and infrastructure. Our objective is to reduce the cost and risk of retirement while identifying opportunities to give existing infrastructure a second life. MAS can also support customers sustainability priorities by capturing and monetizing flared gas, or repurposing existing reservoirs and infrastructure for applications such as gas storage. This can unlock additional value while supporting lower emissions operations, and extending the useful life of existing infrastructure. What differentiates our MAS approach is our ability bring together capabilities from across Baker Hughes. We lead with our strengths in subsurface, wells, and production, while drawing on IET technologies and selected partners where complementary capabilities are required. By early engagement and understanding the assets economics, we can develop integrated solutions around outcomes that matter most to the customer. We are also evolving how we engage commercially, Integrated services will remain the foundation of our model. But where our expertise and capabilities can meaningfully influence outcomes, can selectively pursue performance linked models. These outcome based models are designed to operate within our customers existing frameworks, strengthening alignment and allowing us to share in the value of our solutions help create. These capabilities are supporting a growing pipeline of opportunities. In Pakistan, our recent agreement with OGDC, the MAS model in action. We are beginning with an evaluation of more than 120 wells applying our subsurface expertise to identify opportunities to improve production and recovery. As we deepen our understanding of the assets and their economics, we have the opportunity to broaden our scope and create additional value for our customer over the field life cycle. Similarly, in Libya, we are progressing an integrated program across approximately 50 wells to help our customers store production and maximize recovery from mature fields. The initial scope is focused on ESP change outs with the potential to broaden our role as we demonstrate value. We are also scaling this model through coiled tubing drilling awards across the Middle East and Asia Pacific. By combining subsurface expertise, differentiated technology, and integrated execution capabilities, we are helping customers access additional resources improve recovery, and extend the productive life of mature fields. Together, these examples illustrate the commercial momentum we are building across MAS. Importantly, we are pursuing these opportunities with discipline. We lead where our capabilities are differentiated and partner where complementary capabilities are required. This enables us to focus on opportunities where we can create compelling value for both customers and Baker Hughes. Our growing pipeline and disciplined approach gives us confidence in the long term growth potential of MAS. We are targeting a high single digit CAGR in MAS-related revenue achieving at least $3 billion by 2030. With field management representing a significant source of incremental upside. Ultimately, MAS is about changing how we create value. By connecting capabilities across Baker Hughes and taking a broader role across the asset life cycle, we can help customers recover more from their existing assets while building deeper relationships and creating more durable growth for OFSE. Before I hand the call over, let me close with a few key takeaways. We delivered strong execution and commercial momentum this quarter, supported by record IET RPO and early progress integrating Chase. Just as importantly, we continue to execute against our strategy and expand the opportunities available to Baker Hughes across the energy and industrial landscape. We are building a more industrialized solutions led Baker Hughes with greater customer relevance. More durable revenue streams, and multiple pathways to profitable growth. We remain focused on disciplined execution and creating sustainable long term value for our shareholders. With that, I will turn the call over to Ahmed.

Thanks, Lorenzo. I will begin on slide 9. As I review our financial performance, all results and comparisons will be presented on an adjusted basis unless otherwise noted. We delivered strong company orders of $10.8 billion in the third quarter bringing year to date book to bill to 1.4x. Revenue was approximately $8 billion up 14% year over year. Acquisitions and divestitures contributed 9% on a net basis. Adjusted EBITDA increased 14% year over year to $1.42 billion with IET growth and the net impact of portfolio actions more than offsetting a modest decline in OFSE EBITDA. Adjusted EBITDA margin was 17.6%, broadly in line with the prior year as IET margin expansion offset lower margins in OFSE. GAAP diluted earnings per share were $0.41 while adjusted diluted earnings per share were $0.70 up 2% year over year. Higher earnings from IET and the addition of Chase more than offset lower OFSE results and increased interest expense. Turning to cash flow, we generated $769 million of free cash flow up 10% year over year. Cash flow benefited from strong customer collections including meaningful milestone and advanced payments, as well as higher OFSE cash generation and the addition of Chase. These benefits were partially offset by approximately $200 million of integration restructuring, and closing related cash costs nearly all of which were onetime transaction costs associated with the Chase acquisition. Moving on to capital allocation on slide 10. At quarter end, our leverage ratio increased to 2.5x largely reflecting the debt used to fund the Chase acquisition. Our near term capital allocation priority remains deleveraging the balance sheet. We expect to begin reducing debt in the fourth quarter supported by free cash flow generation and proceeds from the announced Waygate divestiture. These sources of cash will support the partial paydown of term loans and upcoming maturities, steadily reducing debt outstanding. With these actions supporting our deleveraging efforts, we remain confident in our ability to achieve net leverage of less than 1.5x by the second half of 2028. Let's now turn to segment results starting with IET on slide 11. IET orders remained strong at $5.9 billion for the quarter bringing orders over the last 4 quarters to almost $22 billion. We continue to see broad based demand across gas infrastructure data centers, and offshore production. Revenue of $3.48 billion was modestly above the top end of our guidance range and increased 3% year over year despite an approximately 3% net headwind from the PSI and CDC transactions. GTS continued to perform well supported by strong growth in upgrades and transactional activity. This was partially offset by lower CTS revenue reflecting unfavorable mix and ongoing geopolitical headwinds in the Middle East. IET EBITDA increased 8% to $685 million near the upper end of our guidance range. Margin expanded by 90-basis points to 19.7% but came in slightly below the midpoint of our guidance range due to project timing and mix as well as inflation. Turning to OFSE on slide 12. Third quarter revenue increased 6% sequentially to $3.66 billion approaching the high end of our guidance range. OFS revenue benefit from strength across several international markets including Latin America and Europe, as well as an increase in the Middle East, where revenue increased 17% sequentially. North America offshore also benefited from the absence of hurricane related disruptions during the quarter. SSPS maintained its positive momentum with revenue increasing 5% sequentially. Orders were strong at $1.09 billion representing a book to bill of approximately 1.5x. OFSE reported EBITDA of $659 million above the midpoint of our guidance. EBITDA margins increased 50-basis points sequentially to 18.1% reaching the upper end of the implied guidance range. Margin improved in both OFS and SSPS, inflationary pressures from higher logistics and commodity costs, turning to chart on slide 13. As a reminder, our third quarter reported results reflect the period following the acquisition close on July 16. Orders were $831 million resulting in a book to bill of 0.9x primarily reflecting the timing of a large dry cooler award that shifted into the fourth quarter. This data center award has since been received, and we continue to expect second half book to bill to be above 1x. Chart performed well relative to the expectations embedded in our second half guidance revenue was $888 million with strong project execution in LNG, data centers, and space. EBITDA was $156 million resulting in an EBITDA margin of 17.6% benefiting from favorable project mix and stronger margins across several key end markets. We are also making good progress on cost synergies. As Lorenzo mentioned, we have already executed actions representing approximately $70 million of annualized savings. We remain on track to achieve $325 million of annualized cost synergies within 3 years of closing the acquisition. We expect to realize more than $10 million of cost synergies in the second half of 2026 including $3 million realized in the third quarter. Nearly all of the 2026 savings will be within the Chase segment, but over time, we expect the segment to account for approximately 75% total cost synergies. Beyond cost synergies, we continue to see meaningful commercial upside across the combined portfolio. Our pipeline of potential order synergies across IET and Chase continues to expand, with opportunities spanning data centers, geothermal, and space. Moving to slide 14. I will provide fourth quarter guidance and update our expectations for full-year 2026. For clarity, I will speak to the midpoint of the guidance ranges. Our underlying fourth quarter assumptions for the Middle East remain mostly unchanged from our prior guidance. However, any material change in geopolitical conditions or regional disruptions could result in outcomes that differ either positively or negatively from our current guidance. For OFSE, following the stronger than expected increase in the third quarter, we expect Middle East activity to decline sequentially in the fourth quarter. As a result, we expect revenue to return to levels broadly consistent with the second quarter in line with our prior outlook. For IET, we expect Middle East activity to decline modestly compared to third quarter levels. However, logistics have become more challenging and could create additional pressure as we continue to execute projects for customers in the region. Chase has significantly less exposure to the Middle East, and we do not expect the conflict to have a material impact on its fourth quarter results. For the fourth quarter, we anticipate company revenue of $8.25 billion and adjusted EBITDA of $1.46 billion reflecting sequential revenue growth and margin expansion. For IET, we expect continued backlog execution to support fourth quarter performance. As higher margin equipment backlog converts during the quarter, we anticipate margins to improve sequentially. Consistent with the expected closing of the transaction, our guidance assumes approximately 1 month of contribution from Waygate. As such, we anticipate revenue of $3.55 billion and EBITDA of $715 million For OFSE, we expect a modest sequential decline in revenue primarily driven by lower Middle East and North America activity. While this is expected to create margin headwinds during the quarter, benefits from previously announced cost out actions should partially offset the impact. Accordingly, we expect revenue of $3.6 billion in EBITDA of $640 million For Chart, we expect fourth quarter revenue of approximately $1.1 billion and EBITDA of approximately $195 million Together with third quarter results, this is consistent with the $350 million second half EBITDA outlook we recently provided and reflects continued execution against our integration and operational priorities. Turning to full year guidance. We have updated our outlook to reflect year to date performance in our fourth quarter guidance. As a result, we are increasing the midpoint of total company EBITDA to $5.265 billion With free cash flow totaling $2.1 billion year to date, we now expect full year free cash flow conversion of 45 to 50%. This represents strong conversion, particularly considering the impact of Chart related closing costs and incremental interest expense. IET order momentum remains strong. Through the first 3 quarters, we booked $17.9 billion of orders already well above our initial full year guidance range. As Lorenzo mentioned, we are raising our full year IET order outlook to $21.5 billion to $23.5 billion, which at the midpoint implies a book to bill of above 1.6x. This would represent a record year for IET orders and we expect demand to remain strong into 2027, supporting IET book to bill above 1x. The strength in orders continues to drive backlog higher and enhance our visibility into future revenue. At the same time, the growing mix of longer lead time orders across power systems LNG, and offshore production is extending the revenue conversion profile of our backlog and strengthening our visibility into revenue growth beyond 2027. As a result of this longer conversion profile, we expect more modest growth in 2027 with a greater share of revenue converting beyond next year. At the end of the third quarter, 33% of our combined GTE and CTS backlog was scheduled to convert in 2027. By comparison, at the same point last year, 46% of the comparable backlog was expected to convert in 2026. In summary, we delivered solid execution across the company in the third quarter, IET order momentum drove RPO to a record level, OFSE delivered sequential revenue and margin improvement. And Chart performed in line with our expectations. We also generated strong free cash flow of $769 million even after absorbing significant chart related closing costs. Looking ahead, our priorities are clear. We are focused on executing our growing backlog delivering the planned charge synergies, using free cash flow generation to deleverage. With strong commercial momentum, greater visibility into future revenue, and a clear path back to our target leverage, we remain focused on delivering sustainable earnings and cash flow growth. With that, I will turn the call back to Lorenzo.

Thank you, Ahmed. To those following along, please turn to slide 16. As we close today, I would like to reflect on the progress we are making across Baker Hughes, the momentum we are carrying forward, and how we will build on both as we continue transforming the company. Over the past several years, we have strengthened the foundation of the company by simplifying our operating model and embedding the Baker Hughes business system. This progress is driving enhanced margins and cash generation while creating a more resilient business. With this foundation in place, we are advancing the next phase of our strategy. We are building on our heritage of technology leadership, connecting our capabilities to become a more solutions led company that serves a broader range of customer needs across more diverse end markets. Chase accelerates this strategy by expanding our capabilities across energy infrastructure and industrial markets. It strengthens our position in existing markets including data centers and geothermal, while creating new growth opportunities in adjacent areas such as space and industrial gases. Our unmatched portfolio breadth provides a distinct advantage spanning the energy value chain from subsurface to surface and molecule to electron. The opportunity we see is to connect our capabilities in new ways to solve larger and more complex customer challenges. Through early engagement and delivering more enterprise solutions, we can expand our participation across the project and asset life cycle, deepen customer relationships, and create more recurring aftermarket services and digital integration opportunities. We have strengthened the foundation evolved the portfolio, and established a clear path forward in attractive, growing end markets. Now our focus is execution and converting the full potential of Baker Hughes into durable earnings growth and meaningful long term value for our shareholders. In closing, I want to thank all of our employees for their continued commitment to our success and support for 1 another. Operator, we are ready to open the line for questions.

Thank you. We ask that you please limit yourself to 1 question. Your first question comes from the line of Scott Gruber with Citigroup.

Yes. Good morning, Lorenzo and Ahmed. Hi, Morning. So the upsizing of the Horizon 2 IET orders to $50 billion-plus really stood out in the release. You know, the strength of orders recently appears broad based. But can you provide some more color on the building blocks across power, LNG, gas infrastructure, as well as some of the kind of new early stage verticals that drive the new $50 billion plus target.

Yeah. Definitely, Scott. And let me break it down. Through the first 9 months, IET orders totaled $18 billion, including nearly $6 billion in the third quarter and more than $7 billion in the second quarter. Data centers have been a significant contributor. With $4.9 billion of orders year to date. Up approximately 500% year over year. Importantly, though, the strength extends well beyond data centers. Outside of data centers, IET orders totaled approximately $13 billion year to date, reflecting the broad strength of the portfolio across LNG, pipelines upstream gas processing, and FPSO. Including both the mechanical drive, and power generation applications across our turbine portfolio. We are also seeing good momentum across our higher value digital and life cycle offerings, And as you look at IET digital orders, they are approaching $1 billion year to date. Up nearly 20%. Year over year. And demand for transactional services and upgrades positions GTF bookings for another record year. That breadth the versatility gives us increasing confidence in the horizon 2 opportunity. And since introducing the Horizon 2 IET order target, approximately a year ago, we have increased it by $10 billion to more than $50 billion. Reflects really 2 durable trends we are seeing in the marketplace. Accelerating power generation demand particularly in the United States with data centers and continued investment in gas infrastructure to support secure and diversified energy supply. And there are 2 major contributors that continue to increase the Horizon 2 orders outlook. Power systems, we expect orders to approach $7 billion this year, driven primarily by data centers, but also the growing distributed power requirements in the oilfield, LNG, and downstream markets. And across Horizon 2, we now see a path for power system orders of up to $15 billion. LNG is second major growth contributor, and we booked approximately $4 billion of LNG equipment orders year to date. And that could reach about $5 billion this year. Entering horizon 2, we expect LNG orders to moderate compared to the $10 billion of orders booked during Horizon 1 Project FIDs have accelerated beyond our expectations, and now we believe LNG equipment orders could again approach $10 billion during horizon 2. As I mentioned before, beyond those 2 drivers, we have a resilient base business. And expanding aftermarket. Every equipment award grows our installed base and creates a long duration opportunity of services, spares, upgrades, and digital solutions. We have also identified a pipeline of more than $10 billion in enterprise opportunities, excluding Chase, that bring together capabilities from across the company. We expect Chase to create additional upside as we evaluate opportunities to deploy its capabilities across the broader portfolio. And importantly, we have got more than $50 billion target does not depend on emerging opportunities. Such as space, geothermal, or further energy infrastructure investments in the Middle East. We view these as potential upside Over time, the rebuilding and modernization of energy infrastructure in the Middle East could create additional opportunities to expand and upgrade gas and power infrastructure advance delayed projects, and deploy our technologies and life cycle services. In geothermal, our subsurface thermal management, compression, and power capabilities position us to support the full development life cycle. So as you take a step back, the strength is broad based. Significant growth in power systems and LNG, durable demand across our traditional IT markets, and an expanding installed base that supports attractive life cycle growth. That end market breadth and versatility of our portfolio underpins our confidence in both the scale and sustainability of the Horizon 2 opportunity. that is great color, Lorenzo. Appreciate it. I will turn it back.

Your next question comes from the line of Arun Jayaram with JPMorgan.

Yeah. Good morning, Lorenzo and Ahmed. Aaron. Yeah. Gentleman very dynamic environment for IET, OFSE, and Chart. I was wondering if you could just comment or provide any kind of puts and takes as we think about 27. You mentioned how your RPO is up, call it, 23% year over year. We know you do have some capacity constraints in IET. But give us some thoughts on just puts and takes as we start to think about next year.

Yeah. No. Thanks, Arun. I will take it. So look, really, really happy with the way the team has executed. And, you know, as you mentioned, as we mentioned, the continued order strength and backlog, that just improves, our long term visibility while navigating Middle East disruptions, supply chain, inflationary pressures. So as we step back and look at the total company level and we look at 2027, the first thing I would say is book to bill, we expect it to remain above 1x. And revenue growth and EBITDA margin expansion for the company. From a linearity standpoint, you know, we would expect the normal seasonal step down in the first quarter. Followed by revenue and margin progression throughout the year with a more meaningful improvement as we look at the second half. So the way we will break it down, I think, is most helpful is by segment. So starting with IET, As Lorenzo just mentioned, you know, the demand remains quite broad based across our different end markets. And we expect book to bill to remain above 1x. In the first quarter, we have a normal seasonal decline in revenue, also driven in part by the Waygate divestiture. With margins stepping down sequentially on lower volume and ultimately absorption. But for the full year, we see organic revenue growth in the low to mid single digit range. Growth for IET should strengthen later in the year. As that incremental turbine and generator capacity comes online during the first half, and begins to contribute to revenue. And GTS we expect to normalize to mid single digit growth for that business. When you translate that to margins, we should benefit from that higher margin backlog productivity and mix. And, of course, as we go through this the key variables, we continue to watch out the developments in the Middle East. And aeroderivative supply chain execution, particularly as the GTS mix shifts. But I would say specifically for IET as we move into 2028, that combination of additional capacity coming online the backlog we have, and the visibility we have to book to bill in 2027, should support an acceleration in growth and drive further margin expansion. So excited about the setup for IET. For OFSE, we expect a normal seasonal decline in the first quarter. Although the magnitude of that could be influenced by developments in the Middle East. For the full year, our early view right now points to low to mid single digit growth in global upstream spending. And that will be led fundamentally, in our view, by international and off offshore. We also expect continued growth in SSPS, and that will be supported by our expected growth in opening backlog then from a margin standpoint, we expect full year margin in 2027. And that. that is underpinned by product and service pricing as we go through to offset some of that inflation. And then lastly, for chart, the order pipeline is strong. Particularly across space, LNG, data centers, and industrial gases, and it supports our view of a book to bill above 1x in 2027. The first quarter should see a normal seasonal step down, including double digit sequential revenue decline and lower margins, and that is for the first quarter. And at the midpoint of our guidance, we expect second half 2026 revenue of approximately $2 billion. So using that annualized second half, level as the base we expect revenue to grow at a low to mid single digit rate in 2027. And I would emphasize the linearity throughout the year in 2027. The first half will be constrained by lower starting backlog and mix. With revenue and EBITDA margins improving as we go through the year and more meaningful progress in the second half. And that progress is supported by cost synergies, the deployment of the Baker Hughes business system, commercial momentum, and improving mix as we go through it. So overall, 2027 for Chase specifically represents an important step in progression towards 22% to 23% EBITDA margins in the second half of 2028 as we laid out earlier. So what this all means is, you know, we remain constructive on 2027 for the company level revenue and margin growth expansion across the company. Clearly, variables to manage, including everything we talked about around Middle East, but importantly, we see performance strengthening through the year. Greater momentum in the second half and a step up for accelerated growth in 2028. So, hopefully, Arun, that gives a bit of color here. Super helpful. Thanks. Thanks.

Your next question comes from the line of Stephen Gengaro with Stifel.

Thanks. Good morning, everybody. Morning. You have clearly seen significant momentum in data centers and just broader power generation demand And I was hoping you could discuss how you are looking at permitting, capital constraints and project development timelines affecting customers' decisions and how should we sort of assess the quality of the IET backlog as it pertains to things like project maturity, customer commitments, and sort of the visibility we have on conversion.

Yeah. Definitely, Stephen. And we remain very positive on the outlook for AI. Ultimately, the power demand associated with it This demand is being driven by continued investment in AI model training, the early stages of inference adoption, and the emergence of physical AI workloads which we see continuing. That growth will not be linear. The current acceleration in compute demand is increasing the need for reliable, scalable power. And places an increasing premium on the speed of deployment. We are finding that in many cases, the key constraint is not demand for compute capacity. But how quickly customers can secure reliable power. And that dynamic is reinforcing demand for behind the meter and on-site generation where natural gas can provide dispatchable power. This is translating into strong order momentum and greater forward visibility. While permitting and infrastructure constraints can affect project timing. they are also driving for qualified customers to secure capacity earlier in the development. Cycle. And not every project will develop at the same pace, as customers work through their constraints including permitting, fuel supply, site development, and broader infrastructure requirements. While significant capital remains available for AI infrastructure, financing and cost can affect the timing and viability of individual projects, particularly, particularly for the less established players. However, we view this as primarily timing related rather than risk of broad based cancellations. Our experience across many cycles of growth power generation, LNG, oil and gas, and other large infrastructure projects gives us a very disciplined framework for assessing project readiness. What differentiates our backlog is not simply its size but the quality of the customers and projects behind it. We evaluate the profile of the counterparty access to critical technology and infrastructure, including GPUs, permitting progress, execution capability, and overall project economics. Allows us to prioritize established, well capitalized customers with credible development plans and clear path to execution focusing on opportunities that can develop into long term strategic partnerships rather than onetime equipment sales. And importantly, contract structures provide strong protection through material, nonrefundable down payments, and meaningful cancellation penalties. Any proposed sale of a reservation is also subject to Baker Hughes' participation and approval. We are not seeing evidence of broad based project attrition or cancellation across our opportunity set And over time, this should create a substantial installed base with the potential to generate recurring services revenue over the life cycle of the equipment. it is also important to keep the opportunity in context. Power systems is an important and growing part of our business, but Baker Hughes remains highly diversified. With power systems representing less than 20% of total company RPO. So overall, we believe our technology breadth capacity, discipline, and deliberate customer selection positions us well to capture the growing opportunity while mitigating the risk. Great. Thank you for all the detail.

Your next question comes from the line of Saurabh Pant with Bank of America.

Hi. Thank you. Good morning, Lorenzo and Ahmed. Good morning. Good morning. Amit, I know you touched on this a little bit. But I want to dig in a little more on your outlook for Chart EBITDA margin. if you do not mind. Based on your guidance, you are talking about, I think, 17 and a half, 18% margins in second half 2026. 22 to 23% is the target for the second half of 2028. So that is a pretty sizable 400 to 500, 550-basis-point kind of improvement over a 2-year time frame. Can you please walk us through the drivers behind that? I am thinking about near term drivers that we should keep an eye on, but also towards the latter part of that 2-year time frame. Then should we think about margin improvement as more or less linear, or do you think it is more back end weighted because of contracts, pricing or maybe just the way you are resetting the supply chain?

Yeah. Yeah. Sure, Saurabh. So look, I will start with near term. You know, as you saw our fourth quarter margin guidance is 17.7% at the midpoint. Compared with 17.6% reported in the third quarter However, as you know, the third quarter reported margin excludes the dilutive stub period. So on a comparable pro forma and adjusted basis, our fourth quarter outlook implies normal seasonal sequential EBITDA margin expansion alongside the high single digit revenue growth So looking beyond the fourth quarter, the path to 22 to 23% EBITDA margins in the second half, we remain confident with additional upside beyond that level over time. Having said that, I would not expect the progression to be perfectly linear. We expect continued improvement through 2027. A more meaningful step up as we move into 2028, and that is gonna be driven by 3 areas, which I will get into. So first is cost synergies. We have committed to deliver $125 million of annualized cost synergies by year 3. With approximately 3-quarters of those benefits within the segment, and the rest will be across the company. And as you saw, the team's making great progress on cost synergies and in line with the plan. We expect that execution to turn to realization and accelerate as we move into 2027. The second the second driver is going to be improved mix. As the lower margin project work rolls off, and LNG volume picks up in the second half of 27, we expect mix to become an increasingly meaningful tailwind you know, with that backlog composition. And the third the third area I would say is, you know, operational and commercial improvement. You have heard us talk about the Baker Hughes Business System. So we are continuing to deploy that, which is more than just cost reduction. it is about bringing the structure, consistency, and rigor to how we operate the business And then, beyond all those drivers, the incremental operating leverage from growth through those commercial visible opportunities we have across the areas we talked about, commercial synergies from the combination are going to start to overlay into this and drive leverage. So look, there will be offsets along the way, and those are normal things like, merit inflation. And selective investments we would like to do in R and d and growth. So that is going to continue to support our longer term view and growth rate of the business So, really, you know, as we think about it, margins will progress through 2027. With a great port. Greater portion coming through as we move towards 2028. So, hopefully, Saurabh, it just gives you some of the building blocks. Yeah. No. It does, Amit. Thanks a lot for that color. I will turn it back.

Thanks, Your next question comes from the line of David Anderson with Barclays.

Great. Thank you. Good morning. I was wondering if you could just dig into The Middle East a little bit more. I got a few questions around that. I was hoping you could kind of unpack. So I am just curious, a, for kind of to start with what is embedded in the Q4 guidance. You talked about sort of double digit sequential growth, but it sounds like things are slowing a bit in the fourth quarter. Hoping you could expand a little bit that. And then kind of looking into 2027? So what is the path to normalization in your mind? How are you sort of thinking about how this could happen? And then sort of finally, in a Middle East rebuild situation, you have a different portfolio than your competitor. Than your sort of main peers out there. Can you talk about the opportunity set not just for drilling and completion and workovers and all that, but really on the IET side in terms of potential for the. You know, kind of infrastructure rebuild, if you will. I know it is a lot. Sorry. You put that all into 1 place, but if you would not mind. Thanks.

No, David. I will take that. And, again, very pleased with the performance and also the team, resilience and staying secure throughout this turbulent time, and that is first and foremost for us and supporting our customers. OFSE performed well in the quarter. Really driven by some of the improvements in Middle East activity offshore as well as strength in the pressure pumping and artificial lift onshore. That said, though, we are taking a measured approach to the near term outlook and expect to see some moderation in the regional activity levels reflecting heightened tension in some parts of the region. As a result, as we mentioned, our fourth quarter outlook assumes Middle East activity levels will broadly return to second quarter levels. For IET, the impact is limited to logistics and supply chain constraints, and our current guidance incorporates a modest revenue headwind from regional disruption. As we look into 2027. The pace of normalization remains an important variable particularly for OFSE. However, our customer conversations continue to reinforce the long term strategic importance of the Middle East. Continued investments across oil and gas production capacity, natural gas, and power infrastructure. Importantly, a more stable operating environment could create opportunities that extend beyond the normalization of existing activity and potential benefits there. We could see additional opportunities in rebuilding and upgrading critical supply routes supporting broader development across power generation, industrial, digital, and water infrastructure, and that creates a broader opportunity for Baker Hughes given our capabilities across the energy value chain, spanning from the subsurface and gas infrastructure to power generation and life cycle services. So we are remaining appropriately measured on the near term pace of normalization. Our long term outlook for the region remains very constructive. And a more stable environment could support not only recovery of existing activity, but a broader investment cycle around infrastructure, energy resilience, and economic diversification. Great. Thank you, Lorenzo.

Your next question comes from James West with Melius Research.

Guys, thanks for getting me in here. I know we have covered a ton of ground. Already on the call, but I wanted to touch on Chase just briefly. And, really, in particular, the implementation of the Baker Hughes business systems into Chase. I know we are, you know, 3.25 months or so into this, but if you could maybe update us on the implementation so far, you know, the processes, the discipline, the accountability. And then if you could also highlight kind of how you see the implementation going forward, what we should think about over the next, you know, several quarters?

Yeah. James, I will take that. So you know, the business system implementation is progressing really well. The team is going through an intense effort across all facets of the business system. You know, as you would expect, the. You know, we baselined the current state of Chase's existing process and capabilities We have now defined and implemented a tier 1 and tier 2 KPI framework with strong leading indicators across multiple areas, whether it is growth, free cash flow, safety, people, and, you know, got them into standardized operating reviews that we are used to in the company. And, you know, this is just. it is about the common operating cadence, clear ownership, rigorous performance management, and, making it part of daily work. So really, the objective is to identify issues earlier, take corrective actions, put in countermeasures as required, So the 3 broad areas that, you know, we see. We have seen progress already is we are using it for integration. So as an example, you know, how we run the program, and you have seen some of the costs synergy numbers that, the teams executed. The pace of execution is enabled by the business system. On the operations side, across manufacturing, looking at value stream mapping, really structured improvement processes on facility utilization, productivity drivers at the shop level, and delivery performance. And then another good area that we have actually seen this is around capacity. So we are using Kaizen methodologies and targeted operational improvements to unlock additional capacity like you have seen us do in other parts of the company. So thinking about dry coolers, you know, we are using the business system to support our ambition to double the dry cooler revenue by 2029. So, you know, there are many, many examples. The next phase as we look at the next generation of this is really embedding it much more deeply across the whole organization. And establishing areas where we can further drive value, through areas like strategy deployment efforts. So, while it is early, you know, we are really pleased with the intensity and the pace the team is going through, the business system implementation, and we can we can see the results as we go through it. I am confident we will see it going forward. Great. Thank. Thanks a lot.

Thank you. That was our last question. I will hand you back to Mr. Lorenzo Simonelli, Chairman and Chief executive Officer, to conclude the call.

Thank you to everyone for taking the time to join our earnings call today. And I look forward to speaking with you all again soon. Operator, you may now close the call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Have a great day.